Gerald Tostowaryk

Gerald has been a licensed real estate agent for thirty years and an industry instructor for over twenty. He has served on several committees with the Realtors Association of Edmonton and on the Board of the Real Estate Institute of Canada (REIC) Edmonton chapter. He is also an ethics instructor for REIC nationally and enjoys family, various sports, and the outdoors. Check out his popular real estate podcast The Real World of Real Estate here.

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The post Ethical Dilemmas: The real cost of dual agency appeared first on REM.

Most of us possess a driver’s licence to drive an automobile or small truck. Just having that license is not adequate for us to drive a big rig – an 18-wheeler or heavy equipment. One has to train to do so, to be certified by a regulatory authority. Please keep that in mind as I explore my concepts of why dual agency problems are not issues with the agents but rather a result of a lack of regulatory control.

There is no question that many a lawsuit has been tried in Canadian courts by either agents taking advantage of their role (and the clients) or the agents just not understanding what their role is.

Having a real estate license or registration should have more regulatory control. To come out of a real estate school and be let loose on the public is just ripe for recklessness.

A new agent could be involved in a complex commercial or land deal with no training. But they may also find themselves in a dual agency (multiple representation in Ontario) situation and in need of additional skills to complete the task professionally.

In Ontario, I have made proposals to both the regulator and provincial association and received no response.

Here is my outline about what I feel is the right process for dual agency and its future in residential real estate:

• No agent with less than two years of experience should be allowed to undertake dual agency.

• No agent who has done less than 10 deals (that is arbitrary) despite their years in the industry should be allowed to undertake dual agency.

• Any agent wishing to undertake dual agency must take (at least) a one-day, in-person course with an examination at the end.

• The course would be written by arbitrators and mediators who work in the real estate field; there are many lawyers and retired judges who would be excellent course writers.

• Unless an agent has the certification, they simply cannot be a dual agent.

• Mandatory re-certification could be an option every, say, three to five years or as regulations, laws, etc., evolve.

• An agent could advertise they are “certified in dual agency” once the proposed certifications are complete.

It is my contention that with reference to my opening comment about having a license to drive a car but no training to drive a big rig, the problems that exist with dual agency come down to one thing – there has been little to no adequate education across Canada in the process.

Even the study of our fiduciary role is glossed over.

I remember the early training we got when I started in this industry. Sellers would ask us if we had buyers for their house. Agents who worked in a particular area did. Why hire an agent who lacked potential buyers?

By creating a system where we either list for the seller or work with a buyer, we will find another problem: an erosion of our fees as if we are listers. Then, from a seller’s viewpoint, why not go with the lowest-priced agent?

If we are not seeking buyers, we are just offering a service. Why bother having an open house to sell a home when we cannot deal with the buyers?

Open houses will make little sense (yes, I know, it is for agents to pick up buyers and neighbours that want to sell, I have heard that before).

It is not dual agency that is the problem, it is the lack of education and training that is at fault, and it appears that regulators would rather just sweep it away instead of dealing with the reality of their own failings.

To regulators, I state, “Educate, not eradicate.”

Barry Lebow

Barry Lebow, FRI, ASA, ABR, SRES, IFAS is an active Realtor and highly regarded real estate authority in Canada, now in his 57th year in the profession. Throughout his career, Barry has received numerous accolades from various real estate associations for his exceptional work in the industry. With three recognized appraisal designations, he was an active appraiser for three decades. Barry’s expertise extends to providing expert testimony in approximately 600 trials across North America. Currently, he serves as an active broker at Forest Hill Real Estate Inc. Central, in Toronto. For more information or to get in touch with Barry, visit barrylebow.com.

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When asked if it’s a conflict of interest for an agent to represent both a buyer and seller in the same sale, Arthur Kozlowski, broker of record at Toronto’s Green Hedge Realty, says, “That conflict of interest is eliminated by me having to ask the client if they’re okay with it and also by rules that I have to follow when representing both clients.”

His company says that by using their brokerage to both sell and buy, “Homeowners can break even on commission fees, effectively pay nothing, even if the new house costs less.”

Kozlowski admitted that if he were a client, he “wouldn’t want the same agent to also represent the other side. That’s why they have a choice and can say no.” Agents are obligated to ask a seller for permission to represent the buyer as well.

“And most of the time they say yes,” says Kozlowski.

In a press release, he announced that Green Hedge Realty is a brokerage that helps Ontario homeowners to “trade houses without spending money on commission.” What this means, he clarifies, is that the brokerage charges “0.7 per cent whether we’re working with sellers or buyers. In the case of sellers, this would be a fee for the listing services. For the co-operating commission they can choose their own commission as long as it’s 0.7 per cent or higher.”

For buyers, the company “keeps 0.7 per cent of any co-operating commission offered on MLS and pays the rest back to the buyer” as a cash-back rebate.

Many factors affect the sale of a house – the listing price being, perhaps, the most important. In Kozlowski’s opinion, “If you’re not paying a high commission, you have the freedom to adjust your listing price a lot more than if you’re with a traditional brokerage where you pay a higher commission.”

He says he has worked with this model of commissions his entire career, since he got licensed in 2006. What motivated Kozlowski to follow this method, he says, is “the ease with which it’s possible to get listings. I don’t have to be an expert in a certain area, and I can still beat out local agents to get the listings.”

When listing with Green Hedge Realty, homeowners are assured of standard services such as photography of their property, a lawn sign, open houses and help with negotiations.

What they are not assured of is staging. According to a 2019 report by the National Association of Realtors Research Group, a quarter of buyers’ agents agreed that a staged home increased the dollar value offered between one and five per cent, compared to other similar homes on the market that were not staged.

But Kozlowski does not agree. “My impression of staging is that a lot of agents are just adding it to their own services to justify their high prices, but really in most cases the seller just has to clean their house or their apartment,” he says.

The company’s somewhat controversial model of business has earned the ire of other agents. “We do get some comments from agents that don’t like the commission. But for every agent that has a comment like that, there are nine agents who are totally professional and they know how to talk to their own clients about their commission, and how to make offers on properties where the commission doesn’t meet their expectations.”

Sandra Mifsud

Kozlowski is joined by broker Sandra Mifsud in running their two-person brokerage, which even in slow market conditions like those when the pandemic first hit, has yielded listings for the company.

“If it’s a slow market, it’s going to be slow for everyone, not just for those offering a lower co-op commission,” says Kozlowski.

“It seems like every time I go online, there are always listings that offer more than the traditional commission, like three per cent or 3 1/2 per cent, or even four per cent. And those listings can still be on the market for 120 days, 150 days or longer,” he says, adding that many other factors affect the sale of a property.

“There are a lot of people out there who are having trouble with affordability and our services are a good way to make affordability a little better,” says Kozlowski.

Sohini Bhattacharya

Sohini Bhattacharya is a contributing writer for REM.

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New rules that would originally have come into effect on March 15 have been postponed until June 15 to allow for greater education on the changes.

The update by the Office of the Superintendent of Real Estate (OSRE) was announced to licensees on Feb. 9 and came after rules announced in January received harsh criticism from Realtors.

“I think it’s very good news,” says Jim McCaughan, managing broker at Sutton Group West Coast Realty in Abbotsford, B.C. and a former president of the British Columbia Real Estate Association.

“I think we’re going to end up with the ability to do single recusal as long as we have the consent of both parties,” something that should be possible in almost all cases, he says.

In its memo to licensees, the OSRE notes it “is aware of the considerable concern from industry surrounding the implementation of the new rules and the impending implementation date.”

The OSRE notes that in ending dual agency, it was its “intent that a licensee be able to continue to work with only one party to the trade in real estate where there is a conflict relating to client representation – as long as they receive consent from all parties involved in the transaction.”

“They aren’t using the words ‘we are taking away double recusal,’” says McCaughan. But “if you read between the lines (it) clearly indicates that we’re back to single recusal.”

A new rule will be drafted and there will be a 30-day public consultation.

Realtors noted that the previous rule, slated to come into effect March 15, would have limited consumers’ choices of real estate agents and went much further than the industry expected.

New rules forbidding dual agency (where a real estate licensee represents two parties in a sale) originate from recommendations in a 2016 report of the Independent Advisory Group on Real Estate Regulation in B.C.

The report was prompted by allegations that some Realtors, primarily in the booming Lower Mainland market, were engaging in the controversial but legal practice known as shadow flipping. According to the Superintendent, ending dual agency removes the potential for conflict and serious problems and creates transparency for both consumers and licensees.

Realtors initially expected they would be able to represent one party but not the other in a transaction – or single recusal – and would be able to refer one party in a sale to someone else.

But when new rules were announced on Jan. 11 “they said to us ‘you can’t represent both parties (and) should be referring both,” in what is double recusal, McCaughan says.

Under the old rules, when a Realtor had two buyers looking for similar homes and both wanted to make an offer on the same property, the Realtor could represent each buyer independently and both could make an offer on the listing, if both buyers provided informed consent in writing.

In effect, under the January announcement, Realtors would not be able to represent either of the buyers.

McCaughan says it would have meant that in the case of a Realtor who has a listing with a long-time client who then finds a buyer client who wants to buy the property, the Realtor would have to say “Sorry, I won’t be able to represent you in this transaction. I’m going to need to send you to a colleague or if you’d rather find your own, you have that option.”

Real estate rules in B.C. are made by the Superintendent of Real Estate but interpreted and enforced by the Real Estate Council of B.C.

The initial January rules also placed a narrow exemption on the dual agency ban for remote areas underserved by licensees and where an alternative to dual agency would be impracticable.

But that exemption would have served no purpose for Realtors in rural areas, says John Evans, president of the B.C. Northern Real Estate Board.

He says a Realtor could always be made available to serve consumers in remote areas, even if that Realtor did not have local market knowledge.

Evans, who is managing broker of Re/Max Coast Mountains in Prince Rupert, B.C., says the rules banning dual agency are in response to the real estate scene in the Lower Mainland and that shadow flipping is “impossible” in his area.

“It’s a very unique Vancouver market where housing prices can go up by $100,000. In order for a house to go up by $100,000 in my market area, it could take 10 years. It is not a one size fits all rule.”

McCaughan says the B.C. Real Estate Association created a Realtor call for action to write letters to the premier objecting to the rules that were announced in January.

“We provided them with factual information. There were many people that wrote in stories about what would happen with them in a real-life situation,” he says.

“I think that the industry by and large will be very relieved to see what we interpret as a more reasonable approach,” McCaughan says of the February update. “It will give the consumer the choice. If they’re not happy to work with me, knowing that I’ll still be working with you, then they could go to a new source for information if they want to. I think it’s a completely positive step.”

While the Superintendent’s new rules restrict the practice of dual agency, they do not restrict the practice of “double-ending,” in which a listing brokerage earns 100 per cent of the commission if the buyer is unrepresented.

“However,” an explanation from website of the Real Estate Council of B.C. notes, “licensees should remember that dealing with unrepresented buyers creates significant risks for the licensee, the unrepresented buyer and the licensee’s client.”

Danny Kucharsky

Danny Kucharsky is a contributing writer for REM.

The post B.C. backtracks on dual agency ban appeared first on REM.

I might suggest you re-interview Andrew Peck.

Andrew Peck says, “There are a few (Realtors) who will chirp and say this is terrible and I don’t think they understand (Freudian slip?) that this is not going to do away with your ability to work on both sides of the transaction.”

Well Andy, as usual CREA was out of touch, a day late and a dollar short and perhaps YOU should not have chirped before YOU had all the facts. That is exactly what it means and there are still more changes to come.  Thanks to the grotesque apathy from both our provincial and federal organizations, we in B.C. now have an unprecedented situation of dual recusal.  Should I have a buyer client and a seller client not only can I not work both sides of the transaction through Limited Dual Agency, now I must recuse myself from BOTH sides.

Readers should consider the impact on smaller communities where there is perhaps only one licensee. Yes, there is an exemption, but the test is so onerous that I doubt there will ever be an exemption approved.

Realtors may wish to consider that if this sort of thing can happen in B.C. it can happen elsewhere.

The goal was to protect the public. However, the result is to take away consumer choice.  The cure in this case is akin to amputating your leg to heal an ingrown toenail.  Whether you believe in Limited Dual Agency or not, it was a choice that should have been left to the consumer, once properly and fully informed, to make.  It was not a choice for government to make and that point should have been made from the rooftops by CREA and BCREA, but alas, they were napping.  The deafening silence by CREA and BCREA when it was needed can leave absolutely no doubt that they have zero relevance in organized real estate.

Bryan Watkins, RI(BC)
General Manager and Managing Broker
Royal LePage – Advance Realty Ltd.

REM Editorial Team

realestatemagazine.ca

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“These rules will significantly change the way that real estate services are provided in British Columbia,” said Micheal Noseworthy, B.C.’s superintendent of real estate. “The changes will empower consumers and provide clarity around the role of an agent. Ending dual agency removes the potential for conflict and serious problems. We want to create transparency for both consumers and licensees to ensure everyone understands in whose interest licensees must be working.”

The Office of the Superintendent of Real Estate (OSRE) says the new rules originate from the recommendations made in the final report of the Independent Advisory Group on Real Estate Regulation in B.C. in June 2016.

It says the new rules will also:

• Require enhanced disclosure of real estate licensee remuneration that will inform consumers about how remuneration is to be divided between a listing brokerage and co-operating brokerage.
• Ensure licensees inform consumers of the duties and responsibilities owed to both clients and unrepresented parties before working with consumers.
• Warn consumers of the risks of relying on a licensee to provide limited assistance if the licensee already represents another party to the transaction.

The rules will also provide for a small exemption to the dual agency prohibition in situations where a property is so remote as to make finding another agent extremely difficult. Strict reporting requirements will apply in these circumstances, says OSRE.

A consultation on the rules was completed on Oct. 6 after OSRE posted a draft version of the proposed rules for a 30-day public comment. The dual agency ban was supported by 62.6 per cent of the public but just 34.7 per cent of licensees.

Among the objections to the rule was that a restriction on dual agency would limit a consumer’s choice to work with their preferred licensee, with whom they may have developed trusting, long-standing relationships, and that consumers may prefer to work with the listing agent, whom they believe has the most information about the property and may be able to save on commission.

In response, the OSRE says that “acting as a dual agent may impede the ability of licensees to fulfil the fiduciary duties owed to both of their clients. While regulation, by its nature, limits consumer choice, the restriction on dual agency is a reasonable limitation in order to ensure consumers are protected. Further, the results of the consultation do not demonstrate that the public is concerned with the limitations the rule would place on consumer choice as the majority of public respondents were in favour of the restriction on dual agency.”

A proposal that OSRE adopt transaction brokerage so that consumer choice is not limited was rejected. “Transaction brokerage provides no agency to both parties. While transaction brokerage addresses some of the conflicts of interest associated with dual agency, it reduces the range of services that licensees can provide and results in lesser consumer protections for all parties to a transaction,” says OSRE.

“The feedback received from licensees indicated a strong desire for education on the new rules, something strongly supported by both OSRE and the Real Estate Council of B.C. The superintendent will require licensees to complete education relating to the new rules and intends to publish a rule for feedback in the coming weeks to support this requirement,” says OSRE.

REM Editorial Team

realestatemagazine.ca

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People have expressed concern that a sales rep cannot honestly represent the interests of two or more rival parties simultaneously. There may be some truth to this, for the risk of conflict of interest is certainly a possibility. But it all boils down to how the situation is handled. In any case, you’re not a secret agent acting for one side or the other. The objective of both parties to the proposed contract is the same – an agreement.

If a dual agent can successfully negotiate mutually agreeable terms with full and appropriate disclosure, why should they not be rewarded for their efforts by receiving both commissions – one for representing each of the two sides? After all, for all intents and purposes, there are two deals involved, a sale and a purchase. When you’re doing double duty, what’s wrong with a double commission? You’re worth every penny. Both parties want to reach an agreement, maybe one more than the other. And the one who wants it the most will do the most bending.

But if you feel you must reduce, at least wait until you’re dealing with real money, when you’re working with an offer – not when you first accept a listing. As I’ve said, when you take the listing, it’s intangible. It’s merely a percentage of nothing. If you await a sale, you’ll have a better idea of the extent of your time, effort and expense required to achieve the sale. Then, when the finish line is within sight, you can make an informed decision regarding your value.

As you’re probably aware, a double-ending agent can discuss every aspect of the APS with both parties – except for price and motivation. Confidentiality is critical in this regard, but to a limited degree, you must remain dutiful to each of your clients. However, in such a multiple agency scenario, your role effectively changes from one of advocate for one party to mediator between two. All parties know and expect you’ll essentially be mediating because you obtain their informed, written consent. If either party refuses consent, then one of the parties (usually the buyer) would have to seek the services of another brokerage. There’s no “Chinese wall” in a real estate brokerage.

Sometimes, it’s collectively advantageous for the seller and buyer to acquire the agency services of the same expert agent. A mediator handling the negotiation process can sometimes more effectively arrange a meeting of the minds than two aggressive, adversarial agents trying to out-negotiate the other. While trying to get the best terms for their respective clients, combative agents can sometimes blow the sale simply because their own egos get involved. Everybody wants to be a hero. Mediation has worked effectively and successfully in many other industries, such as family law, for a very long time. And it can and does work well, albeit informally, in our business. Maybe it’s time we officially embraced the concept in our industry.

In the realty world of ever-rising expenses and falling revenue, where will our industry end up? If we survive at all in any recognizable form, I suggest we’ll likely evolve into one that may offer a menu from which a seller or buyer can acquire specific services for prescribed fees, possibly paid in advance, maybe set by our associations. Standard procedures could change to reflect a new protocol reality. Maybe homeowners would complete and submit the requisite forms to the brokerage and perform all other services typically provided by a full-service brokerage, with fees varying accordingly.

There would probably be fewer real estate salespeople and brokerages in this brave new world. In any given market, there’s just so much revenue to be generated. To limit the number of salespeople in any particular region, maybe a cap on applicant registrations could be imposed. With fewer participants, the remaining professionals might generally earn a comfortable living. There’d be no more superstars. Maybe a university degree requirement will facilitate a significant transformation. In any case, there’s no doubt in my mind that our industry is evolving.

I mean, think about how we did business not that long ago, before the introduction of computers, the internet, smart phones, flexible commission rates, franchises, independent contractors and government meddling. It was a different era and the future will be too. And consumers will collectively get what they pay for.

If the public continues to demand lower and lower fees, then it must accept more of the burden of responsibility for risk and marketing expense. In the meantime, you decide what your own services are worth and charge accordingly. It’s your money.

[quote_box_center]“You must accept that you might fail; then, if you do your best and still don’t win, at least you can be satisfied that you’ve tried. If you don’t accept failure as a possibility, you don’t set high goals, you don’t branch out, you don’t try – you don’t take the risk.” – Rosalynn Carter[/quote_box_center]

Ross Wilson

Ross Wilson is a retired real estate broker with extensive experience as a brokerage owner, manager, trainer and mentor over a highly successful 44-year career. His book, The Happy Agent – Finding Harmony with a Thriving Realty Career and an Enriched Personal Life is available where print and e-books are sold, including the TREB, MREB, RAHB and OMDREB stores. Visit Realty-Voice.com.

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“Every day, Realtors help their clients understand real estate transactions, so they can make informed decisions,” says British Columbia Real Estate Association (BCREA) president Jim Stewart in a news release. “Over my nearly 25-year career as a Realtor, many long-standing clients have developed trust with me, and now my clients have no choice but to start from the beginning and build new relationships. Trust is a crucial part of what is often the largest financial transaction in people’s lives.”

The draft proposal from the Office of the Superintendent of Real Estate prohibits the practice of dual agency, except in “remote locations that are under-served by licensees.” The proposal has been provided for public comment and is to take effect on Jan. 15, 2018.

BCREA points out that limited dual agency is used in cases where Realtors have established relationships with buyers and sellers, in commercial transactions and in situations where Realtors specialize in particular property types.

“Rather than working with licensees they don’t know, we’re concerned people may decide to complete real estate transactions without representation,” says BCREA CEO Robert Laing. “That goes against the consumer protection mandate of the Superintendent of Real Estate and the Real Estate Council of B.C.”

Real Estate Board of Greater Vancouver president Jill Oudil says in a statement: “Realtors support their clients and back changes that improve transparency in the real estate transaction. The new disclosure requirements proposed by the superintendent will enhance the public’s understanding of the real estate transaction in B.C. We support this aspect of the measures announced today. Where the proposed changes fall short are in respect to consumer choice.

“We believe in informing home buyers and sellers and empowering them to choose who they want to represent them in a transaction,” says Oudil. “We’re encouraged to see that government recognizes circumstances where exemptions to the ban on limited dual agency are necessary. We believe there are other circumstances where consumers should have the choice to consent to limited dual agency so long as they can demonstrate that their consent is informed. For example, people who’ve built a longstanding relationship with a Realtor shouldn’t be forced to find alternative representation in a transaction against their wishes. We’ll continue to stress this point with government.”

Lang adds: “We know consumers value the right to choose their own representatives. Over the next few days, BCREA will examine the draft rule changes carefully and consult with the 11 real estate boards to determine our next steps.”

REM Editorial Team

realestatemagazine.ca

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